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Ally Invest Managed Portfolios Debuts 0% Fee, ‘Freemium’ Option

To enjoy the absence of advisory fees, investors must keep 30% of their portfolio in cash.
Sept. 25, 2019
Advisors, Investing
Ally Invest Managed Portfolios Debuts 0% Fee, ‘Freemium’ Model
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Ally Invest Managed Portfolios, the robo-advisor arm of the online banking and brokerage firm, is launching a new, so-called Cash-Enhanced Managed Portfolio option with 0% advisory fees.

Ally has called its new approach a “freemium” model: To avoid advisory fees, investors must keep 30% of their portfolio in cash. That’s a conservative position that may suit some investors but should be considered in the context of your individual investing goals. Customers who don’t want so much of their holdings in cash can opt for a lower allocation with Ally’s legacy Managed Portfolio option, which carries an annual advisory fee of 0.3% of assets.

The company also announced that its Ally Invest brokerage arm now offers 500 commission-free exchange-traded funds and has a new promotion of 90 days free self-directed trading for new customers. Earlier this year, Ally Invest Managed Portfolios dropped its minimum investment to $100 from $2,500.

Ally’s changes are the latest in a line of cost-cutting moves by brokerages to compete for new clients.

“Since the advent of Robinhood, commission-free trading is also starting to pop up on individual investor trading platforms,”  said David Truesdell, a financial analyst for Backend Benchmarking, which monitors the robo-advisor industry. “Ally, like other digital advice providers, is trying to solve the customer acquisition puzzle and are using free features to attract new investors.”

Ally cites its August survey of 2,000 Americans that found 75% are nervous about investing and 80% would feel more secure having a percentage of their money in cash.

“This freemium approach is designed to help build the confidence to ‘try it out,’ whether you want to have us invest the money for you or you want to do it yourself,” Diane Morais, president of consumer and banking products for Ally Bank, said in a news release. “While some barriers to investing may persist for people, Ally won’t be one of those friction points.”

The 30% cash buffer is held within the portfolio, for which Ally will pay 1.9% annual percentage yield, roughly equivalent to holding the cash in a high-yield savings account. For wary investors who want to dip their feet into the markets, or for long-time investors who want a more conservative portfolio, this allocation may be in line with their strategy.

Other competitors offer 0% management fees with a lower or no “cash drag,” or a set amount of a portfolio kept out of direct investment.

“The strategy of using a high cash allocation to offset costs is similar to Schwab’s, which offers 0% management fees at their Intelligent Portfolios base service level,” Truesdell says. “Schwab holds roughly 10% of its portfolio in cash, and clients currently earn 0.65% annually on the cash. In contrast, Ally’s cash holding will make up 30% of the portfolio and earn a far more competitive rate at 1.90% APY.”

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